Things in life don’t always go to plan, and when times get hard, a personal loan can be just what you need to get you over a hump in the road. As of June this year, there were over 1.5m consumer loans active in the Philippines, with an additional 500,000 active loans relating to motor vehicle purchases. Often, taking out a personal loan to get you through a rough patch makes perfect sense. It’s far better to borrow in order to secure the car, appliance or business expansion you need than to try and get by without those basic necessities. We’ve reviewed the different types of loans available to Filipino residents, to help you understand what help is available should you have cause to need it.
What is a personal loan?
Lenders in the Philippines provide a variety of personal loan types to people from all walks of life. Generally, these borrowers require fast cash to fund a crucial expense. There are different types of loans and arrangements out there to suit people in many different situations, with varying financial standings and abilities to make repayments.
Borrowers should never enter into a loan agreement without fully understanding the terms of that loan. It’s important, therefore, to understand the terminology relating to loans as well as the responsibilities of the borrower to avoid getting into unmanageable debt.
Features to understand
There are three common features shared by all personal loans no matter which lender is offering the facility. They are:
- The loan amount
Loans range from as little as Php 10,000 up to Php 2m. Lenders will fix a loan amount with you based upon your own personal circumstances and need. Those with adverse credit history or a low income may only be offered smaller amounts until their credit rating is improved.
- The loan term
The term of the loan means the length of time over which you will be expected to pay the loan back. Most banks require payments to be made monthly over 12, 18, 24 or 36 months. The faster you can pay the loan off, the lower your interest rate will be, but the monthly payments will be larger.
- Interest rates
Most personal loans are offered with fixed interest rates, although there is a handful offering variable rates too. The interest rate is the amount you will pay on top of your borrowing for the privilege of taking a personal loan.
Understanding these three elements will help you to compare loan offers between different lenders to see which type of borrowing suits your needs best.
Types of personal loan
Personal loans in the Philippines vary according to what you intend to use them for. Some will require collateral from the borrower, such as securing the loan on your home, others will be straightforward borrowing with no collateral required.
The types of loans available in the Philippines include:
- Cash loans
Cash loans are personal loans which are released as cash. This can be attractive to Filipino borrowers as they can then be used for any purpose required. Cash loans are usually taken with short repayment periods and no collateral, which means they attract some of the highest interest rates around.
- Payday loans
Payday loans are the cash loans with the shortest repayment periods, typically 30 days or less. Those who are waiting for payday to come around but need the money in advance often find this a quick and convenient way to cope. Convenient it is, but cheap it is not, with interest rates as high as 40 per cent. Payday loans require no credit check and no collateral, so are a safety net when all other means of borrowing have been exhausted.
- Consumer loans
Consumer loans are usually offered so that the borrower can purchase a specific item or items. Usually, the seller won’t release the goods until the loan is in place, so they can offer a good way of acquiring an expensive item and paying for it in instalments. Businesses often use this loan type to expand or start a new business.
Salary loans are what we deal with here at Asteria Lending. These are not the same as payday loans and are based on the amount of money you own. Salary loans can be used for any purpose and are designed to be affordable to pay off and to have competitive interest rates. For more information on salary loans or to see how much you could get, get in touch today.
- Secured loans
Secured loans require collateral to act as security for the lender. The type of collateral required varies from one lender to another but is usually something like a deposit, a vehicle or even a house. The lender has the right to take the collateral in the situation where the borrower does not make payments as agreed. Because the risk to the lender is lower, the interest rates on these types of loans are generally lower too.
- Unsecured loans
Unsecured loans, as you might have guessed, are loans which do not require any collateral up front. This poses a higher risk to lenders, therefore, they tend to come with lower loan amounts available and higher interest rates. Interest rates can range from 25 per cent up to 40 per cent, so always check the rate before agreeing to take this type of loan.
Loans in the Philippines can be used to fund all sorts of life events. From paying for school for your kids to renovating your home, from covering the cost of medical bills to funding your dream around the world trip; personal loans make more things possible.
Applying for a loan in the Philippines
Applying for a loan is usually relatively straightforward, with most lenders offering help with forms should you require it. However, as your financial standing will have a huge effect on what you are offered and how much it will cost, it’s a good idea to have all your affairs in order before you apply.
Having good credit standing will help you gain acceptance for a personal loan and will put you in a good position to negotiate lower interest rates. You’ll need to prove a stable income for an unsecured loan, so make sure you gather payslips, certificate of employment, tax returns and anything else which would help your application.
For more advice or for help securing a personal loan, get in touch with our expert advisors today.